How State Aid to Cities Has Plummeted

You might call Mayor Tom Barrett a victim of history.

Most major cities in America have other ways to raise revenue besides the property tax. “It’s safe to say we’re one of the only cities in America that doesn’t have another tax — an income or sales or gas tax,” Barrett notes.

Wisconsin’s leaders, however, didn’t want cities using tax rates to gain an advantage on other cities. “The idea was to prevent the balkanization of the state — let’s not have cities compete with each other based on taxes,” Barrett observes.

It was all part of the “Wisconsin Idea,” which made this a unique laboratory for democracy that originated concepts like workman’s compensation and the first state income tax in 1911 (two years before a constitutional amendment created the federal income tax). With the new revenue from the income tax, Wisconsin’s leaders decided, it would return a substantial portion of the revenue raised to localities through “shared revenue,” while prohibiting them from levying their own income or sales taxes.

This left a city like Milwaukee with two main sources of revenue: the property tax, undoubtedly the most hated tax in the state (which makes it difficult to raise) and shared revenue from the state. And that has been plummeting for years.

The decline dates back to the mid-1990s. In 1995, 53 percent of Milwaukee’s general purpose budget was paid for by shared revenue; today, just 39 percent comes from this.  Most of that decline occurred in just the last decade, under governors Scott McCallum, Jim Doyle and Scott Walker. In the 1992/93 budget year, figures from the Legislative Fiscal Bureau show, 13.1 percent of the state budget went to shared revenue; by 2012/13 it accounted for just 6.3 percent of the state budget.

This has had dreadful consequences for Milwaukee. In 1995, Milwaukee’s $224 million in shared revenue was enough to pay the entire cost of Milwaukee’s police and fire departments, plus another $38 million for other costs. By the time Barrett was running for mayor in 2003, shared revenue to Milwaukee had dropped to the point where it was only enough to pay for the police department’s budget.

Today, nine years into Barrett’s service as mayor, shared revenue to Milwaukee doesn’t even pay for the police; it now falls $114 million short of paying for the police and fire department budgets.

If it had risen at the rate of inflation, that shared revenue payment of $224 million in 1995 would be $340 million today; in fact, Milwaukee now gets $218 million. That’s a drop of 36 percent in real dollars in state aid to Milwaukee.

A 2011 study by then Milwaukee Comptroller Wally Morics compared Milwaukee to nine other mid-sized cities in America and found they raised about one-quarter of their budget from other local taxes besides the property taxes. Milwaukee was the only city that got no revenue from other taxes. These other cities also got state aid, though not as much as Milwaukee. All told, Milwaukee received 17 percent less of its budget from intergovernmental aid and other taxes (besides the property tax) than these other cities. That leaves a huge gap in revenue for Milwaukee.

It’s remarkable how the mentality in Wisconsin has changed regarding state shared revenue. As recently as the mid-1980s, then-mayor Henry Maier would castigate the legislature if they dared provide less aid to the cities. There was a widespread recognition in America that cities had tremendous poverty and unique needs, and needed more help from state and federal governments, and Maier was a national leader in promoting this idea. He would bully even Democratic legislators from the city, often with great success, threatening to target them in the next election if they didn’t deliver for Milwaukee.

Maier’s successor, John Norquist, was among those legislators that Maier had tried to bully. Partly in reaction, Norquist took a different tack, arguing that “you can’t build a city on pity,” and emphasizing the value of cities and why they were a good investment. Wisconsin without Milwaukee, he’d say, would be Iowa.

Norquist also came up with a new wrinkle to reward his fiscal conservatism, successfully proposing the state “expenditure restraint program,” that upped shared revenue for cities that limited their growth in spending. That helped Milwaukee and is still part of the state shared revenue formula.

But meanwhile, the population had grown tremendously in the suburbs and the city of Milwaukee had less power in the legislature. There had always been resentment of Milwaukee outstate. “There are politicians in Wisconsin who can credit their careers to going after Milwaukee,” Barrett says. Now was the chance to go after the state’s biggest city.

Since the 1970s, state shared revenue had been “equalized,” providing a larger share to localities with more poverty and a lower tax base. But in the late 1990s, the equalization formula was dropped (while it was retained in a watered-down fashion for school aid). Pat Curley, chief of staff for Barrett, was a lobbyist for the city back then and recalls what happened: “Suburban areas and Republicans saw cities like Milwaukee and Racine benefitting more and they wanted to change that.”

Meanwhile, the state budget was getting squeezed: the state had made a commitment to pay two-thirds of the cost of the schools, and was paying ever more for corrections and Medicaid. “Local governments were not as sympathetic as schools or nursing homes,” Barrett observes.

Indeed, McCullum proposed eliminating all shared revenue, referring to local governments as “the whiners.” This set off a storm of protest from local governments which killed the idea.

But in the decade since he made that comment, the state has, little by little, year by year, gotten nearly halfway to the point McCallum proposed, as the portion of the state budget devoted to state aid has been cut in almost half.

The impact falls the hardest on cities like Milwaukee, says Kurt Witynski, assistant director of the League of Municipalities, which represents all cities and villages in the state. “All of our members have felt it,” he says. “But it has hurt the older cities like Milwaukee or Superior, Ashland or Beloit, more than places like Brookfield, which never got that much in the first place.”

Witynski is hoping the next budget will restore some of the funding. Barrett, however, worries that too many legislators don’t see the value of cities: “There has to be a recognition that cities bear a lot of the cost of metropolitan areas. People come to Summerfest or the ethnic festivals but they don’t appreciate that police protection for this is a big-ticket item.”

But the biggest problem for Barrett and Witynski may be historical. The old agreement that created state revenue sharing a century ago has largely been forgotten, even as the prohibition against local income or sales taxes remains.

“We’re not going to have a city sales or income tax, that’s not part of the discussion,” Barrett says. “But we have to have a recognition that this is the program that assures metro areas can remain strong so they continue to be economic generators and job creators.”

Short Takes

-One other potential revenue source for the city is user charges, like the fees residents pay for water or other services. But the comptroller study found Milwaukee charged 29 percent less in user charges than the nine other mid-sized cities studied.

-Given that, have you thought about raising property taxes more, I asked Barrett? “I’m interested in continuing to hold this job,” he replied.

-It’s rare I find myself in agreement with both Christian Schneider and James Causey, but both did columns in the Sunday Milwaukee Journal Sentinel Crossroads arguing in favor of legalizing recreational marijuana use. Schneider even had some nice insider jokes, suggesting that, wink wink, he might have inhaled himself on occasion. Oh Christian, you rascal. But your point is well taken. Legalization is long overdue.